The document discusses questions about the regulation of business. Regulation involves state interference in free markets through mechanisms like price controls, quotas, and standards. Regulation is necessary to address market failures and protect the public interest. Businesses may respond to regulation through compliance, entrenchment of practices, or innovation. Cartels, which involve anticompetitive agreements among businesses, are more likely in industries with few competitors and established communication among firms. Governments use various policies like tariffs, quotas and currency devaluation to protect domestic industries from foreign competition.

1. Business & Finance
Chapter # 15
External Regulation of Business
Q-1) What is regulation?
Q-2) Why is regulation of business necessary?
Q-3) What is the legal meaning of regulation?
Q-4) What is efficient regulation?
Q-5) What are the outcomes of regulation?
Q-6) How do businesses respond to regulation?
Q-7) What is compliance?
Q-8) What is cartel?
Q-9) In which cartel members are typically agreed and colluded?
Q-10) In which industries or sectors cartel or collusive behavior in general are more likely to occur?
Q-11) What are the factors of direct regulation of externalities?
Q-12) What are the corporate responsibility for financial reports?
Q-13) State the economic advantages of International Fare trade. [ND10] 10
Q-14) What are the barriers to free international trade?

2. Business & Finance
Chapter # 15: Regulation of a business
Q-1) What is regulation?
Regulation is the form of state interference
with the operation of free market. This could
involve regulating demand, supply, price,
profit, quantity, quality, exit, entry,
information, technology or any other aspect of
production or consumption in the market.
Q-2) Why is regulation of business
necessary?
Regulation of a business is needed:
(i) To address market
failure and externalities,
(ii) To protect the interest
of public
Q-3) What is the legal meaning of
regulation?
In a legal sense, a regulation is a rule created
by the government, an administrative agency
or another body which interprets statue or
circumstances of applying the statue. It is a
form of secondary or delegated legislation
which is used to
• To implement the primary peace of
legislation,
• To take account of particular
circumstance or factors emerging
during the period of the gradual
implementation or during the period of
primary peace of legislation
Regulations may also take form of statutory
instruments, statutory orders, by-laws and
rules.
Q-4) What is efficient regulation?
Regulation has costs for some and benefits for
other. Efficient regulation exists where the
total benefits to some people exceed the total
costs to other.
Q-5) What are the outcomes of
regulation?
Regulation is justified using various reasons
and therefore can be classified in several broad
categories according to its outcome. Regulation
may be put in place to
(i) Address market failure,
(ii) Increase or reduce
social standing of various social group,
(iii) See through collective
desire of a significant section of society,
(iv) Enhance opportunity
for the formation of diverse preference
and beliefs in society,
(v) Affect the development
of particular preference across society as
a whole,
(vi) Deal with problems of
irreversibility.
Q-6) How do businesses respond to
regulation?
Business can respond in a variety of ways to
regulation:
(i) Entrenchment of a
particular practice,
(ii) Mere compliance,
(iii) Full compliance,
(iv) Innovation.
Q-7) What is compliance?
Compliance is the systems or departments
which ensure that peoples are aware of and
take steps to comply with rules and laws.
Q-8) What is cartel?
Cartel is an agreement between the businesses
not to compete with each other. The
agreement is usually verbal and often informal.
Q-9) In which cartel members are
typically agreed and colluded?
The cartel members typically agree or collude
on:
(i) Prices,
(ii) Output levels,
(iii) Discounts,
(iv) Credit terms,
(v) Technology,
(vi) Which customers they
will supply,
(vii) Which areas the will
supply,
- By Ujjal Das
ujjalhfc@gmail.com
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3. Business & Finance
Chapter # 15: Regulation of a business
(viii) Who should win a
contract,
Q-10) In where in industries or sectors
cartels or collusive behavior in
general are more likely to occur?
Cartels or collusive behavior in general are
more likely to occur in industries or sector
where:
(i) There are fewer
competitor,
(ii) The products have
similar characteristics,
(iii) Communication
channels between competitors are
already established,
(iv) The industry is
suffering from excess capacity,
(v) There is a general
economic recession
Q-11) What are the factors of direct
regulation of externalities?
To intervene in the level of supply in a market
where there are problems of external costs and
benefits such as pollution, the government can
use:
(i) Price regulation
(setting maximum or minimum selling
price)
(ii) Direct or indirect
taxation or tariffs
(iii) Subsidies to suppliers,
for instance to encourage exporters
(iv) Regulation, by means
of:
- Quotas, that is physical limits on
output so that output is at the social
optimum
- Standards that must be complied with
- Fines for those business that do not
meet the necessary standards
Q-12) What are the corporate
responsibilities for financial
reports?
The Chief Executive Officer (CEO) and the
Chief Financial Officer (CFO):
(i) Must review all
financial reports and sign a certificate
that:
- they do not contain any
misrepresentation
- information in financial report is ‘fairly
presented’
(ii) are responsible for the
internal financial controls
(iii) Must report any
deficiencies in internal accounting
controls, or any frauds involving
management, to the board, audit
committee and external auditors
(iv) Must indicate any
material changes in internal accounting
controls
Submission of an inaccurate certification may
lead to a fine on the CEO or CFO of up to $ 5
million plus a prison term of up to 20 years.
Q-13) State the economic advantages of
International Fare trade. [ND10] 10
Q-14) What are the barriers to free
international trade?
In practice many barriers to free trade exist
because governments try to protect home
industries against foreign competition. This
‘protectionism’ can be practiced by a
government in several ways:
(i) Tariffs or customs
duties
(ii) Import quotas
(iii) Embargoes (bans on
certain imports or exports)
(iv) Hidden subsidies for
exporters and domestic producers
(v) Import restrictions
(vi) Government actions to
devalue nation’s currency
- By Ujjal Das
ujjalhfc@gmail.com
3

4. Business & Finance
Chapter # 15: Regulation of a business
- By Ujjal Das
ujjalhfc@gmail.com
4